Why gambling is becoming a bigger problem for borrowers

Gambling is the latest target of banks in the new world of mortgage lending, with many lenders now questioning betting habits great and small.

Mortgage brokers are warning prospective home buyers who gamble to rethink their habits or risk being unable to borrow from most lenders.

The increased scrutiny even extends to large cash withdrawals, which some lenders may consider an attempt to hide gambling habits.

The number of borrowers affected could be significant, with recent data from the Australian Institute of Family Studies finding 574,000 Australians regularly engaged in wagering on sports.

Steve Vicary, director of White Knight finance, told Domain the onus had shifted to borrowers to prove they were good candidates for a loan, and that gambling was one of the banks’ major bugbears.

“Any idea that someone has a gambling habit is a red flag to a lender,” he said.

“We’ve had a couple of clients who’ve had a direct impact on their finance applications because of their gambling.”

He said house hunters turning to cash-based wagers to avoid gambling transactions appearing on bank statements would still have to explain big ATM withdrawals, particularly in or near gambling establishments.

“We’ve seen a young fella withdrawing money from the ATM and giving money to his mum,” he said. “The bank identified that ATM was near a casino and said it was a gambling habit, and he had some explaining to do.” 

Despite recent attention on other areas of spending, Vicary said gambling was bad for borrowers because it instantly set them back in lenders’ eyes.

“Banks only have a certain amount of money they can lend,” he said. “If a credit officer saw a regular expense for a gym or a regular expense for gambling, I know which application would be more likely to be approved.”

He said gambling had always been “the dirty word in borrowing money” but with banks looking back even further into borrowers’ spending habits, anyone looking to clean up their habit needed to start now.

“They’ve got to understand the rules of the game if they want to buy a property,” he said. “The golden rule in this is it’s their gold and their rules.”

Vicary said an applicant earning the average income of $82,436 who bet $50 a week would reduce their borrowing capacity by almost $32,000, while someone with a $200 per week habit would reduce their borrowing capacity by $127,000. And that’s assuming they can even get a loan.

Loanworx chief executive Pauline Ryan told Domain she’d seen the impact first-hand, including one client who was a professional gambler. 

“If we see they’ve got gambling there some lenders won’t touch them,” she said.

“They’re worried you can’t pay your loan because you’re a gambler.”

Punters looking to borrow more than 80 per cent of value of the property were in the “danger zone” according to Ryan, because buyers borrowing with high loan-to-value ratios would need lender’s mortgage insurance, and insurers steered clear of gamblers.

She said gamblers needed to change their habits at least three months out, if not longer, to prove they could be trusted.

Will Unkles, director of 40 Forty Finance, told Domain it was unsurprising gambling was now in the spotlight.

“One of the key pillars of lending when you assess is character,” he said. “Gambling would be a negative point when figuring out what type of character a borrower has.

“Gambling is purely a discretionary expense, it’s not like putting fuel in your car or paying your rent.”

He said he expected many other regular expenses that ate up income would attract attention as banks improve their oversight on expenses.

“Any of those subscription food services will be the next thing,” he said.